Is it Really Necessary to Have Insurance in California?

Yes. Insurance is really necessary for California individuals and businesses looking to protect their lives, properties, and businesses against financial losses that may arise from expected and unforeseen circumstances. While most insurance coverages are optional and depend on your specific set of needs, some are mandated by law, and are therefore necessary. Most mandatory insurance is for liability coverage, where the public is protected from your personal or business actions or inactions.

There are different types of insurance policies. The largest categories of insurance in California include:

• Health insurance
• Life insurance
• Property insurance
• Commercial insurance
• Liability insurance
• Natural disaster insurance

Make sure to discuss your insurance products coverage needs with a California-licensed insurance professional. Knowledgeable agents can assess your current coverage limits and suggest how much coverage you actually need to get the best cost and protection.

HEALTH INSURANCE - Is It Necessary in California?

Health insurance is necessary because it helps to prolong life through regular checkups and catching significant health issues early, and also saves lives in case of a medical emergency. Californians without proper health insurance coverage are more likely to neglect health conditions and dismiss early warning signs due to unaffordability.

In 2022, California was home to over 39.2 million people, with over 3.1 million of them without health insurance. About 38% of Californians live with at least one of the following chronic conditions: Alzheimer’s disease, stroke, heart disease, and diabetes. These conditions might get worse with time if they are not urgently treated or carefully managed. With health insurance, Californians battling such conditions can access quality health care that will improve their well-being and life quality. A typical health insurance policy in California covers hospitalization, emergency services, prescription drugs, preventive services, mental health services, substance abuse disorders, and rehabilitative services. However, it excludes weight loss surgery, cosmetic procedures, fertility treatment, and sterilization reversal.

In 2023, there were 19 health insurance companies offering medical coverage for California residents. 4 of them were domiciled in California, while the rest were from out-of-state (2 in Arizona, 2 in Delaware, 1 in Illinois, 2 in Indiana, 1 in Minnesota, 1 in Nebraska, 1 in Nevada, 1 in Ohio, 1 in Pennsylvania, and 3 from Wisconsin). Discuss your health insurance options with a state-licensed health insurance expert who can recommend the suitable health insurance policy to match your coverage and cost needs.

Temporary medical insurance in California (Short Term Health Insurance in CA)

Health insurance companies in California do not offer short-term limited-duration health insurance policies. In 2019, the State Senate enacted Bill SB-910, banning the sale of short term major medical insurance in the state. Short-term health is defined as a policy with a term of less than a full year (12 months).

The table below shows the common types of health insurance coverage available in California:

LIFE INSURANCE - Is It Necessary in California?

Life insurance is necessary because of its ability to cover the funeral costs of the deceased and helps leave money to the people left behind.
As of 2020, the average life expectancy of Californians was 79.0. Unfortunately, over 315,000 people died in the state that year, with over 236,000 deaths recorded among seniors. Most of these seniors died from Alzheimer's disease, cancer, chronic lower respiratory disease (CLRD), diabetes, heart disease, hypertension, and chronic liver disease. With the average cost of a funeral ranging from $2,770 to $10,000, individuals without life insurance might put a lot of financial strain on their loved ones after their demise. In California, life insurance is a policy that pays a specific amount to beneficiaries upon the demise of an insured. A life insurance policy is important for the following reasons:

• It provides financial protection and security for your family members at your demise
• The death benefit received by your policy beneficiaries can be used to cover specific expenses like paying off a mortgage and your children’s college tuition.
• Provide funds for your burial expenses, thereby reducing the financial burden of such expenses on your family members
• You can access living benefits if you have a cash value policy. Life insurance with living benefits allows you to borrow or withdraw from your death benefits while alive to pay medical bills or for personal use at retirement
• Purchasing key employee (keyman life insurance) or buy-sell agreement coverage helps compensate a business when a key employee dies or allows you to purchase a business partner's share of a business

Term Life Insurance

Term life insurance in California provides coverage for a specified period like 5, 10, or 20 years. The death benefit from a term life policy is only payable to policy beneficiaries if the insured dies within the policy term. This means that no death benefit will be paid if you live beyond your policy. It is better to purchase a term life insurance policy at a young age because the cost of term life insurance increases with age. There are two sets of term life insurance policy premiums in California:

• Guaranteed maximum premiums
• Current premiums
  Current premiums are usually much lower than guaranteed maximum premiums but can increase over time. However, your current premium cannot be more than your guaranteed maximum premiums. You may be able to convert your term life policy to a cash value insurance without physical examination. However, the premiums for the converted life insurance policy will definitely be higher than your term policy.

Cash Value Life Insurance

Cash value life insurance is a lifelong policy combining death benefits and cash value accumulation features. Death benefits are usually paid to your policy beneficiaries at your demise. You can borrow money from your cash value while still alive. Examples of cash value life insurance in California are:

• Whole Life Insurance: It is lifelong coverage that pays out death benefits to policy beneficiaries at an insured’s demise. Additionally, whole insurance policies have a cash value account that accrues interest at a fixed rate and on a tax-deferred basis. Whole life insurance policies have fixed premiums and death benefits for the duration of the policy
• Universal Life Insurance: It is a life insurance policy that lasts throughout the insured’s life. Universal life insurance combines death benefits and a cash value account. When insureds pay premiums, a portion of the money goes into the death benefit, while the other portion goes into building the cash value account. After sufficient money is accumulated in the cash value account, insureds can withdraw or borrow against the cash value. Unlike whole life insurance policies, universal life insurance policies have flexible death benefits and premiums that insureds can adjust to suit their needs. The types of universal life insurance are:
  • Indexed Universal Life Insurance (IUL): It is a policy that provides death benefits and a cash value tied to a market index without loss
  • Variable Life Insurance: It is a policy that provides death benefits and a cash value component tied to the stock market and can have the market risk of loss or gain
• Final Expense (FE) Insurance: It covers funeral costs and other final expenses after an insured’s demise. Asides from covering funeral costs, FE can also pay for other financial obligations such as mortgages, car payments, final medical expenses, and other debts an insured leaves behind
  The average cost of life insurance in California differs based on the insurer and the type of policy. Typically a term life insurance policy is usually the cheapest insurance in California compared with cash-value life insurance policies. Before purchasing life insurance, use the license lookup tool, provided by the California Insurance Department, to help verify the licensure of the insurance company and the agent you want to purchase your policy from.

PROPERTY INSURANCE - Is It Necessary in California?

The California property insurance market is broadly divided between Private Property insurance and Commercial Property Insurance. While the coverages between them differ, the common theme is the valuation of the insured property. The valuation affects the cost of insurance and the coverage limits that the insurance company will pay in case of a covered loss.

California property insurance can be insured on the basis of:

• ACV - Actual Cash Value is the discounted value of an item. It discounts the brand new price by its age, condition, and comparative cost of the item available for sale - in the same or similar condition. AC valuation is typically cheaper but it pays you less in case of a covered loss.
• RCV - Replacement Cost Value is the amount it would take to get the insured property replaced with the same brand new item. RC valuation typically costs more but it has a higher limit of coverage, which ensures that you do not spend unnecessary out of pocket in case of a covered loss.

Private property insurance is necessary because it covers your properties (structures and personal belongings) from damages caused by perils like theft, fire, lightning, vandalism, and windstorm. Private property insurance provides financial reimbursement when losses and damages occur to people’s (property owners and renters) properties. It is a broad term that includes policies like homeowners, renters, condo, landlord, and auto insurance. Auto insurance liability coverage is the only type of private property insurance mandatory by California law; other coverages are elective. California residents need to have private property insurance because:

• It provides dwelling coverage: Private property insurance policies protect your home and unattached structures like fences, sheds, or gates
• It provides liability coverage: It protects against financial losses resulting from third-party bodily injuries, property damage, lawsuits, and liability claims
• It provides additional living expenses: Provides coverage if an insured needs to relocate to a temporary residence due to damages to the insured home
• It provides personal belongings coverage: It covers personal belongings like electronics, furniture, and expensive jewelry if stolen or damaged due to covered losses
• It provides natural disaster coverage: It covers damages to your structures caused by natural disasters like fire, lightning, windstorm or hail, and volcanic eruptions. However, private property insurance does not cover flooding and earthquakes

Residential Insurance

Homeowners insurance

In 2022, over 8 million homes in California were homeowners-occupied. These homeowners need insurance to protect against financial losses from fire or lightning, explosion, sudden and accidental water damage, riot or civil commotion, smoke, and theft. If the home is being financed, the mortgage lender will require insurance coverage. Most homeowners insurance policies in California provide the following coverages:

• Coverage A (dwelling)
• Coverage B (other structures)
• Coverage C (personal property)
• Coverage D (loss of use)
• Coverage E (personal liability)
• Coverage F (medical payments to others)

Home insurance in California does not cover damages resulting from floods, earthquakes, earth movement, pest infestation, mold, war, wear and tear or maintenance, and neglect. You need a separate policy to cover these excluded perils. For instance, a homeowner can purchase a separate flood insurance policy to cover damages caused by floods and an earthquake insurance policy to cover damages caused by earthquakes. Talk to a licensed insurance agent for all your homeowners insurance questions and if you want to get a homeowners insurance policy.

Condo insurance

It provides coverage when your personal properties in your condo unit are damaged due to covered perils. Condo insurance also covers damages to the interior of the condo unit. In addition, it provides coverage for personal property, loss of use, personal liability, and medical payments to others

Renters insurance

Most apartment fires involve renters losing all their personal possessions (usually not covered by landlord insurance policies). Tenants living in the over 6.4 million rental dwellings in California should consider getting renters insurance policies to protect their personal belongings located in the properties they occupy. Generally, renters insurance policies provide the following coverages:

• Coverage C (personal property)
• Coverage D (loss of use)
• Coverage E (personal liability)
• Coverage F (medical payments to others)

Landlord insurance

Owners of the over 6.4 million rental properties in California need landlord insurance policies to avoid financial losses. This is because the homeowners insurance policy works only if the home is occupied by its owners. Tenant’s renters insurance policies only cover damages to renters’ personal belongings; and any damages to the dwelling and other structures are excluded. Unlike the homeowners insurance policy, which covers only the owners of the home, landlord’s insurance policies cover damage caused by the tenants. Landlord insurance covers items used to service a rental home, such as backup generators, toolboxes, lawnmowers, and snow blowers.

Additionally, California landlord insurance provides liability coverage to the owner of the property. So, for example, if your home is rented and your tenants start a fire in the fireplace without opening the flue and get carbon monoxide poisoning - the landlord’s liability coverage will pay for the damages and the landlords’ legal defense, if needed.

Mobile home insurance

Most mobile home insurance policies in California pay to repair damages to mobile homes and personal belongings of the mobile home owner. Mobile home insurance can also cover additional living expenses if you have to temporarily live somewhere else while your mobile home is under repairs due to damages caused by covered perils. If the mobile home is rented out, the owner needs Landlord insurance and the tenant needs renters insurance.

The average cost of home owner insurances (Homeowners and Landlords) in California is $1,400 - $1,700, for a $250,000 dwelling coverage, with a $500 Wind and Hail deductible. Most California homeowners and renters have challenges with how much home insurance to purchase. As a general rule, it is always better to purchase a home insurance policy that covers the rebuilding and replacement cost of your home and the replacement of personal properties within the home with new ones in the event of a covered damage or loss.

Speak to a California-licensed P&C insurance agent who has access to multiple home insurance companies, who will evaluate your needs (putting your structure type and home ownership status into consideration), shop around for a home insurance quote, and recommend coverage options that will provide the required protection. An agent will ensure that you purchase the best policy from a trusted California home insurance company or one that is licensed to offer coverage in the state.

Watercraft Insurance

In California, watercraft insurance is a broad term for several insurance policies like boat, yacht, and personal watercraft insurance policies. Watercraft insurance covers yachts, jet skis, boats, and other vessels from physical damages or losses.

Boat insurance in California protects you and your boats against financial costs arising from injuries or damage caused while boating or sailing. While watercraft insurance is not required in California, if a vessel is financed - the lender will require property coverage, to protect their investment. If the boat is stored in a marina, liability insurance is typically required to protect the others from your.

There are about 4 million recreational boaters in California, with 800,000 of them officially registered. In 2016 588 boat accidents caused 50 deaths, 266 injuries, and $3.9 million in property damage.

Aircraft Insurance

Generally, aircraft insurance can be private or commercial. It covers physical damage to aircraft like helicopters and airplanes and any legal fees arising from its operation and ownership. There are 25 insurers that sell aircraft insurance policies in California.

Airplane insurance in California is needed for over 25 thousand aircrafts registered in the state. Out of those, over 12 thousand of aircraft are privately owned and over 4 thousand are corporate-owned. Every single aircraft in active operation across any of the 257 California airstrips must be properly insured.

Auto Insurance

Auto insurance is essential for the nearly 37 million vehicles registered in the state in 2023. Every year Californians drive over 350 billion miles and get into an average of:

• 250,000 - 300,000 property damage crashes,
• 170,000 - 200,000 injury crashes, and
• 3,200 - 3,400 fatal crashes.

Additionally, motor vehicle theft in California increased from 168,046 in 2020 to 179,956 in 2021. An auto insurance policy protects against financial losses arising from vehicle-related injuries, damages, and thefts. In 2021, over 500 thousand California vehicles were stolen.

The car insurance requirements in California include a minimum auto liability coverage of $15,000 per person, with a $30,000 limit per accident, and $5,000 per property damage (15/30/5). The penalty for driving without auto insurance in California involves fines and imprisonment. It can also lead to out-of-pocket expenses in the event of auto theft and accidents. The most common auto insurance coverages in California are liability, comprehensive, collision, uninsured/underinsured motorist, and medical payments coverages.

The California Department of Insurance permits 130 insurance companies to sell car insurance in the state. Out of those, 31 are based in California. While regulated, California auto insurance premiums vary from one insurer to another based on how the policies are structured, bundled, and discounted for its members.

Speak with a state-licensed auto insurance agent who can help you go over your car insurance needs and compare auto insurance quotes in California and policies from several competing auto insurance companies. A knowledgeable agent can help you get the best discounts.

Motorcycle Insurance

Every one of the over 850 thousand registered California motorcycles requires insurance coverage. Just like with auto insurance, every rider must carry at least the minimum liability (15/30/5 - as described above) coverage. If the motorcycle is financed, besides the basic liability the lender will require full coverage insurance - to guarantee that they get paid if you total the bike or if it gets stolen. In 2022, over 9 thousand California motorcycles were stolen.Motorcycle insurance covers loss or damage to your motorcycle. It also covers third-party injuries and damages. Motorcycle insurance differs from auto insurance because it does not cover passengers.

COMMERCIAL INSURANCE - Is It Necessary in California?

Commercial insurance is necessary in California because it covers the cost of liability claims and property damages that can affect operations of large and small businesses in the state. With over 4.2 million businesses employing nearly 19,000,000 residents, commercial insurance coverage is essential to keeping the business going. All these businesses need commercial insurance policies to protect against financial losses resulting from risks like property damage, theft, liability lawsuits, employee injuries, illnesses, and death.

Commercial insurance is needed in California because:

• It ensures the business keeps running even if it suffers damages caused by covered perils like theft, property damage, lawsuits, employee injuries, illnesses, and death
• It helps to retain and motivate business employees to give their best to the company
• It helps businesses gain the trust of prospective clients and customers. Commercial insurance policies help to assure customers that the business has a way of compensation when something goes wrong with contract agreements
• Some commercial insurance policies like automobile liability insurance and workers’ compensation insurance are mandatory by law. Failure to carry them may result in severe penalties like fines and imprisonment
• Lenders may require businesses to have commercial insurance policies like commercial property or commercial liability insurance policies to qualify for loans
• California landlords who rent or lease their facilities out to businesses typically require them to have certain commercial insurance coverages

The California Department of Insurance permits 250 insurance companies to provide commercial insurance in the state. Out of those, 22 are domiciled in California. Discuss commercial insurance with a qualified and licensed insurance agent who has access to multiple insurers and insurance types.

LIABILITY INSURANCE - Is It Necessary in California?

Liability insurance is necessary because it protects you when you are at fault. If you directly or indirectly cause damage or injury to someone or someone’s property - your liability insurance covers you. This is why liability insurance is frequently a legally-mandated requirement. You will be protected against financial losses resulting from third-party liability claims and lawsuits with liability insurance.

The most common types of liability insurance policies in California are:

Residential Liability:

Generally, residential liability covers homeowners, renters, and landlords when they are legally responsible for third-party liabilities. It also covers any legal costs arising from liability claims. In California, renters personal liability coverage is usually a minimum of $100,000. Note that homeowners liability covers damages caused by pets but excludes injuries sustained by them (pet insurance covers this).

Auto Liability:

• Auto insurance - liability: It protects you when you cause injuries to other drivers or damages to their vehicles. (Mandatory)
• Motorcycle insurance - liability: same as auto (Mandatory)

Commercial Liability:

• Directors and officers liability: It protects a company director and officer from damages resulting from wrongful acts committed while in office. These wrongful acts include omission, misstatement, misleading statements, alleged errors, or breach of duty
• Liquor liability: It protects businesses that manufacture, sell, serve, or facilitate the use or purchase of alcohol against financial loss or damages when intoxicated customers injure themselves or others (Typically mandatory)

Commercial general liability (CGL): It provides coverage when a business causes bodily injury, personal injury, and property damages to third parties due to their business operations or products

• Cyber liability insurance: It protects businesses from financial losses resulting from data breaches and other cyber security issues
• Employer’s liability insurance: It covers businesses when employees file lawsuits or make liability claims due to work-related injuries or illnesses
• Product liability insurance: It provides coverage when a business product causes bodily injury to a third party or damage to their belongings. The California Department of Insurance permits 102 insurance companies to sell product liability insurance in the state. Out of those, in 2023, 2 were based in California.

Beyond the standard liability coverage, any California business and non-business owning resident can purchase liability coverage which exceeds the coverages of the individual policies. This type of liability insurance is called Umbrella liability insurance. It provides extra coverage beyond what standard business, residential, and auto insurance policy covers. Umbrella liability insurance provides additional protection for property damages, bodily injuries, and lawsuits. It kicks in once the primary liability coverage is exhausted.

Discuss liability insurance with a knowledgeable California P&C insurance agent.

DISASTER INSURANCE - Is It Necessary in California?

Disaster insurance in California is necessary because it helps to reduce the financial impact of natural disasters on residents and their property. Most disaster insurance comes at an extra cost, as an additional coverage.

Natural disasters like volcanoes, wildfires, drought, floods, landslides, earthquakes, and storms are common in California. For instance, in 2021, 9,260 wildfires occurred in the state, burning over 2.2 million acres of land and putting over 2 million California properties at risk. Most home insurance policies in California cover only natural disasters like fire or lightning, windstorms or hail, and volcanic eruptions. However, disasters like floods, earthquakes, and earth movement are excluded. Having disaster insurance will cover you from damages caused by natural disasters that your standard home insurance policy excludes.

Common types of coverages under disaster insurance in California are:

• Flood insurance: In California, nearly 200,000 residents live in coastal areas putting homes and over 870 miles of roads at risk. Drivers find it challenging to go to work or school when roads get flooded, and this greatly impacts California's coastal economy, which accounts for $662 billion in wages and $1.7 trillion in GDP. The residents of these coastal areas should consider getting flood insurance policies to provide coverage for losses resulting from floods.

  You can buy flood insurance from the National Flood Insurance Program (NFIP Direct) through licensed P&C insurers and “Write Your Own” (WYO) insurance companies. Using the federal flood insurance, Californians can get a maximum of $250,000 flood insurance coverage for the structures and $100,000 for the contents (personal property). Renters can get up to $100,000 in flood insurance coverage for their personal belongings. If additional flood insurance coverage is needed, it must be purchased through the private and surplus flood insurers. Primary flood coverage up to the maximum limit is purchased through the NFIP and the overage can be claimed through the secondary insurer. The California Department of Insurance permits 21 insurance companies to offer flood insurance in the state. Out of those, 4 are domiciled in California

  Flood insurance covers your property when damaged by floods caused by mudflow, overflow of inland or tidal waters, and unusual and rapid accumulation or runoff of surface waters from any source. It excludes floods resulting from any earth movement like landslides, sinkholes, earthquakes, land subsidence, gradual erosion, and destabilization or movement of land resulting from water accumulation.

  NOTE: If the amount of water damage to the structure exceeds 50% of the market value of the building, FEMA requires that the building is properly elevated (50 percent rule).

• Earthquake insurance: The earth crust under California has multiple weaknesses (faults), and 200 of them are potentially hazardous due to their slip rates. Over 70% of Californians live within 30 miles of a fault where high ground shaking could occur in the next 50 years. About 2 to 3 earthquakes with a magnitude of 5.5 and higher usually occur in California yearly. Individuals residing close to fault lines should consider getting earthquake insurance policies. Earthquake insurance policies pay to repair damages to homes, personal belongings, and unattached structures caused by earthquakes. Most common damages from an earthquake are: collapsed structures, damaged utility lines (electricity, water, sewer, etc.), fires, and landslides.

  Most common earthquake insurance coverages in California are:

  • Dwelling coverage
  • Personal property coverage
  • Additional living coverage or loss of use

  California earthquake home insurance does not cover fire damage, flood damage, or damage to land and vehicles. Note that you cannot buy earthquake insurance directly from the insurer. You can only get it through a licensed insurance agent. Any Californian seeking to purchase an earthquake insurance policy must first have residential property insurance. Also, you can only get earthquake insurance from the same homeowners insurance company that issued your residential insurance policy.

The California Department of Insurance permits 93 insurance companies to offer earthquake insurance in the state. Out of those, 23 are based in California.

Speak to a California insurance agent who can guide you through the process of purchasing disaster insurance policies in the state. They will provide answers to all your insurance questions regarding the prevalent disasters in your locality. In addition, an agent will assess your needs and ensure you purchase the correct amount of disaster insurance coverage.